CVB FINANCIAL CORP

For the first quarter of 2024, we reported net earnings of $48.6 million, compared with $48.5 million for the fourth quarter of 2023 and $59.3 million for the first quarter of 2023. Diluted earnings per share were $0.35 for the first quarter, compared to $0.35 for the prior quarter and $0.42 for the same period last year. Net income of $48.6 million for the first quarter of 2024 produced an annualized return on average equity (“ROAE”) of 9.31%, an annualized return on average tangible common equity (“ROATCE”) of 15.13%, and an annualized return on average assets (“ROAA”) of 1.21%. Our net interest margin, tax equivalent (“NIM”), was 3.10% for the first quarter of 2024, while our efficiency ratio was 47.22%.

Net interest income was $112.5 million for the first quarter of 2024. This represented a $6.9 million, or 5.78%, decline from the fourth quarter of 2023, and a $13.3 million, or 10.55%, decrease from the first quarter of 2023. The quarter-over-quarter decrease in net interest income was primarily due to a 16 basis point decline in net interest margin driven by approximately $6 million in higher interest expense associated with time deposits and borrowings. The decline in net interest income compared to the first quarter of 2023 was due to a 35 basis point decrease in net interest margin and a $158.5 million decline in average earning assets. Interest expense from borrowings increased by approximately $12 million compared to the first quarter of 2023, as average borrowings grew by $1.02 billion.

Noninterest income was $14.1 million for the first quarter of 2024, compared with $19.2 million for the fourth quarter of 2023 and $13.2 million for the first quarter of 2023. First quarter income from Bank Owned Life Insurance (“BOLI”) decreased by $4.3 million from the fourth quarter of 2023 and increased by $2.4 million compared to the first quarter of 2023, primarily due to restructuring and enhancements in BOLI policies in the fourth quarter of 2023.

Noninterest expense for the first quarter of 2024 was $59.8 million, compared to $65.9 million for the fourth quarter of 2023 and $54.9 million for the first quarter of 2023. The $6.2 million quarter-over-quarter decrease was primarily due to the expense associated with the FDIC special assessment. The first quarter of 2024 reflected an additional accrual of $2.3 million for the FDIC special assessment. This is in addition to the $9.2 million accrued in the fourth quarter of 2023. The increase in the accrual was the result of the FDIC increasing its initial estimate of losses from last year’s bank failures by 25%, which was communicated in March of 2024.

At March 31, 2024, total assets of $16.47 billion increased by $447.2 million, or 2.79%, from total assets of $16.02 billion at December 31, 2023. Interest-earning assets of $14.91 billion at March 31, 2024, increased by $448.9 million, or 3.10%, when compared with $14.46 billion at December 31, 2023. The increase in interest-earning assets was primarily due to a $707.7 million increase in interest-earning balances due from the Federal Reserve, offset by a $129.0 million decrease in investment securities, and a $134.2 million decrease in total loans.

Total investment securities were $5.29 billion at March 31, 2024, a decrease of $129.0 million, or 2.38%, from $5.42 billion at December 31, 2023. At March 31, 2024, investment securities held-to-maturity (“HTM”) totaled $2.45 billion, a decrease of $10.0 million, or 0.41%, from December 31, 2023. At March 31, 2024, investment securities available-for-sale (“AFS”) totaled $2.84 billion, inclusive of a pre-tax net unrealized loss of $485.6 million. AFS securities decreased by $119.0 million, or 4.03%, from $2.96 billion at December 31, 2023. Pre-tax unrealized loss grew by $35.9 million from December 31, 2023. Our tax equivalent yield on investments was 2.64% for the quarter ended March 31, 2024, compared to 2.71% for the fourth quarter of 2023 and 2.37% for the first quarter of 2023. The 27 basis point increase in the yield on investment securities from the prior year was impacted by the positive spread generated from fair-value hedging of certain AFS securities, in which the Company receives daily SOFR and pays a weighted average fixed cost of approximately 3.8%.

In June 2023, fair value hedging transactions were executed in which $1 billion notional pay-fixed interest rate swaps were consummated with maturities ranging from four to five years, wherein the Company pays a weighted average fixed rate of approximately 3.8% and receives daily SOFR. The fair value of these instruments totaled $10.9 million and were reflected as an asset at March 31, 2024. These instruments generated interest income of $3.7 million for the quarter ended March 31, 2024. Refer to Note 9 – Derivative Financial Instruments of the notes to the unaudited condensed consolidated financial statements of this report for additional information.

Total loans and leases, at amortized cost, of $8.77 billion at March 31, 2024, decreased by $134.2 million, or 1.51%, from December 31, 2023. The quarter-over-quarter decline in loans included decreases of $64.0 million in commercial real estate loans, $61.3 million in dairy & livestock and agribusiness loans, $7.9 million in construction loans, $6.8 million in commercial and industrial loans, partially offset by an increase of $6.6 million in SFR mortgage loans. The decline in dairy and livestock loans primarily relates to the seasonal peak in line utilization at the end of every calendar year, demonstrated by a decline in utilization from 80% at the end of 2023 to 75% at March 31, 2024. Our yield on loans was 5.30% for the quarter ended March 31, 2024, compared to 5.18% for the fourth quarter of 2023 and 4.90% for the first quarter of 2023. This 40 basis point increase in our loan yields year-over-year was the result of recent increases in interest rates, highlighted by the 525 basis point increase in the Fed Funds rate since the end of the first quarter of 2022.

The allowance for credit losses totaled $82.8 million at March 31, 2024, compared to $86.8 million at December 31, 2023. There was no provision for credit losses in the first quarter of 2024. The decline in the allowance was due to $4 million of net charge-offs in the first quarter of 2024, primarily due to two borrowers in which specific loan loss reserves were previously established in 2023. Projected loss rates continue to be driven primarily by economic forecast changes to various macroeconomic variables such as Real GDP growth and the rate of unemployment.

Since March of 2022 to March of 2024, the Federal Reserve has increased the Federal Funds rate by 525 basis points to the target range of 5.25% to 5.50%. In comparison to the rising Federal Funds rate, our average cost of deposits has increased from three basis points for the first quarter of 2022 to 74 basis points for the first quarter of 2024. The change in market interest rates that has resulted from the Federal Reserve's monetary policies has impacted the availability of higher interest rates on short-term alternatives to deposits, such as money market mutual funds and treasury notes. These higher yielding alternatives, as well as overall inflationary increases on spending, have impacted our deposit levels over the last two years.

Noninterest-bearing deposits were $7.11 billion at March 31, 2024, a decrease of $93.4 million, or 1.30%, when compared to $7.21 billion at December 31, 2023 and a decrease of $731.5 million, or 9.33%, when compared to $7.84 billion at March 31, 2023. At March 31, 2024, noninterest-bearing deposits were 59.80% of total deposits, compared to 63.03% at December 31, 2023 and 63.92% at March 31, 2023.

Interest-bearing deposits were $4.78 billion at March 31, 2024, an increase of $554.7 million, or 13.12%, when compared to $4.23 billion at December 31, 2023 and an increase of $354.6 million, or 8.01%, when compared to $4.43 billion at March 31, 2023. The increase in deposits included $300 million in new brokered deposits at March 31, 2024. These deposits, which mature every 90 days, were combined with cash flow hedges which resulted in a fixed rate of approximately 4.2%. Customer repurchase agreements totaled $275.7 million at March 31, 2024, compared to $271.6 million at December 31, 2023 and $490.2 million at March 31, 2023. Our average cost of total deposits including customer repurchase agreements was 0.73% for the first quarter of 2024, compared to 0.61% for the fourth quarter of 2023 and 0.17% for the first quarter of 2023.

At March 31, 2024, total borrowings, consisted of approximately $2.0 billion of one-year advances from the Federal Reserve’s Bank Term Funding Program ("BTFP"), at a weighted average cost of approximately 4.75%. The BTFP advances include maturities of $695 million in May and $1.3 billion in January of 2025.

The Company’s total equity was $2.09 billion at March 31, 2024. This represented an overall increase of $8.9 million from total equity of $2.08 billion at December 31, 2023. Increases to equity included $48.6 million in net earnings, that were partially offset by $27.9 million in cash dividends and an $11.7 million decrease in other comprehensive income from the tax effected impact of the net decline in market value of available-for-sale securities and increase in value of pay fixed swaps. We engaged in no stock repurchases during the first quarter of 2024. Our tangible book value per share at March 31, 2024 was $9.36.

Our capital ratios under the revised capital framework referred to as Basel III remain well-above regulatory requirements. As of March 31, 2024, the Company’s Tier 1 leverage capital ratio was 10.46%, common equity Tier 1 ratio was 14.95%, Tier 1 risk-based capital ratio was 14.95%, and total risk-based capital ratio was 15.77%. Refer to our Analysis of Financial Condition – Capital Resources.